Weathering the storm

The Middle East's telecom sector should remain vigilant as fears of a US recession continue to unnerve investors and consumers.

With fears of a recession in the US continuing to unnerve investors and consumers around the world, it appears that ever more sectors are being hit by a general loss of confidence. The communications sector is far from immune, with recent weeks bringing a succession of grim results for international ICT companies.

Sales of Apple's much-hyped iPhone in the UK fell short of expectations during the first two months of sales, and some analysts are warning that the producer might have to slash the price of the device. Also in the UK, mobile phone retailer and telecom group Carphone Warehouse, missed important sales targets over Christmas period.

In the US, mobile operator Sprint Nextel said it was planning cut 4,000 jobs and shares in the company fell by more than 25% after it reported subscriber losses.

Closer to home, Dubai-based mobile phone maker I-mate posted its second profit warning this financial year, leading to rumours that the company may be considering putting itself up for sale. While the company's woes are more related to problems with one of its main chip suppliers than a slowdown in the US economy, the situation demonstrates the tight margins that many telecom companies and component makers are running on.

It also helps to dispel some of the illusion that companies in the Middle East are somehow immune to a slowdown in the international economy. With many regional telcos increasingly looking to Asia and other areas outside the Middle East to expand their operations, even a modest downturn in the global economy could affect their growth strategies.

Component suppliers should be more worried about the regional market. The declining stock market in Saudi Arabia, which plunged by 10% earlier this week, could have a significant affect on consumer spending, and consumers may question the need to buy the latest mobile phone or PDA. Indeed, with some four million small shareholders in Saudi Arabia, even modest declines in the Saudi bourse can lead to a fall in consumer spending. Despite the ongoing mega-projects in the region, which give an enormous impetus to Gulf economies, local companies could still feel the chill.